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IN THE COMPANIES TRIBUNAL OF SOUTH AFRICA, PRETORIA

CASE NO: CT021Aug2015

DATE: 26 OCTOBER 2015

Ex parte application:

Naspers Beleggings (RF) Bpk

(1994/005106/06)........................................................................................................................Applicant

Coram: Delport P.A.

Decision handed down on 26 October 2015

DECISION

INTRODUCTION

[1] The applicant applies to the Companies Tribunal in terms of sections 72 (5) and 72 (6) of the Companies Act 71 of 2008 (“Act” / “Companies Act”) and regulation 142 of the regulations in terms of the Companies Act (GNR 351 of 265 April 2011) (“Companies Act regulations” / “regulation/s”) for an exemption from appointing a Social and Ethics Committee (“SEC”).

BACKGROUND

[2] The applicant is an investment holding company.

[3] The applicant does not trade in shares and merely holds shares for its shareholders. It does not have “business premises”, employees, third party obligations and its turnover for 2014 and 2015 was below R1 million.

[4] The applicant is due to the number of shareholders alone, required to appoint a SEC due to the fact that its public interest score (“PIS”), based on the number of shareholders, is more than 500 for the years 2012 - 2015.

APPLICABLE LAW

[5] The Companies Act 71 of 2008 provides as follows in section 72:

“(4) The Minister, by regulation, may prescribe—

(a) a category of companies that must each have a social and ethics committee, if it is desirable in the public interest, having regard to—

(i) annual turnover;

(ii) workforce size; or

(iii) the nature and extent of the activities of such companies;

(b) the functions to be performed by social and ethics committees required by this subsection; and

(c) rules governing the composition and conduct of social and ethics committees.

(5) A company that falls within a category of companies that are required in terms of this section and the regulations to appoint a social and ethics committee may apply to the Tribunal in the prescribed manner and form for an exemption from that requirement, and the Tribunal may grant such an exemption if it is satisfied that—

(a) the company is required in terms of other legislation to have, and does have, some form of formal mechanism within its structures that substantially performs the function that would otherwise be performed by the social and ethics committee in terms of this section and the regulations; or

(b) it is not reasonably necessary in the public interest to require the company to have a social and ethics committee, having regard to the nature and extent of the activities of the company.

(6) An exemption granted in terms of subsection (5) is valid for five years, or such shorter period as the Tribunal may determine at the time of granting the exemption, unless set aside by the Tribunal in terms of subsection (7).

(7) The Commission, on its own initiative or on request by a shareholder, or a person who was granted standing by the Tribunal at the hearing of the exemption application, may apply to the Tribunal to set aside an exemption only on the grounds that the basis on which the exemption was granted no longer applies.”

[6] The regulations in terms of the Companies Act provide in reg 43(2) that a SEC must be appointed by:

• State owned companies;

• listed public companies;

• any other company with a Public Interest Score above 500 in any two of the previous five (financial) years.

[7] Regulation 43(5) defines the functions of the SEC as:

“(5) A social and ethics committee has the following functions:

(a) To monitor the company’s activities, having regard to any relevant legislation, other legal requirements or prevailing codes of best practice, with regard to matters relating to -

(i) social and economic development, including the company’s standing in terms of the goals and purposes of

(aa) the 10 principles set out in the United Nations Global Compact Principles; and

(bb) the OECD recommendations regarding corruption;

(cc) the Employment Equity Act; and

(dd) the Broad-Based Black Economic Empowerment Act;

(ii) good corporate citizenship, including the company’s––

(aa) promotion of equality, prevention of unfair discrimination, and reduction of corruption;

(bb) contribution to development of the communities in which its activities are predominantly conducted or within which its products or services are predominantly marketed; and

(cc) record of sponsorship, donations and charitable giving;

(iii) the environment, health and public safety, including the impact of the company’s activities and of its products or services;

(iv) consumer relationships, including the company’s advertising, public relations and compliance with consumer protection laws; and

(v) labour and employment, including––

(aa) the company’s standing in terms of the International Labour Organization Protocol on decent work and working conditions;

and

(bb) the company’s employment relationships, and its contribution toward the educational development of its employees;

(b) to draw matters within its mandate to the attention of the Board as occasion requires; and

(c) to report, through one of its members, to the shareholders at the company’s annual general meeting on the matters within its mandate.”

[8] The PIS is calculated as follows –

(a) a number of points equal to the average number of employees of the company during the financial year (‘employee’ has the meaning set out in the Labour

Relations Act 66 of 1995 (reg 26(1)(a));

(b) one point for every R1 million (or portion thereof) in third party liability of the company held by creditors at the financial year end;

(c) one point for every R1 million (or portion thereof) in turnover during the financial year; and

(d) one point for every individual who, at the end of the financial year, is known by the company –

(i) in the case of a profit company, to directly or indirectly have a beneficial interest in any of the company’s issued securities; or

(ii) in the case of a non-profit company, to be a member of the company, or a member of an association that is a member of the company (reg 26(2)).

[9] A company that falls outside the categories above, or one that falls within those categories but which is a subsidiary of another company (as defined in section 3 of the Companies Act) and the holding company has a SEC that will perform the functions of the SEC for the (subsidiary) company, a SEC need not be appointed (reg 43 (2) (a)).

[10] If a company is required to appoint a SEC, it can apply for a ruling by the Tribunal for an exemption, under the provisions of section 72 (5) of the Companies Act.

[11] Application for a ruling must be made

• In form CTR 142

• together with a supporting affidavit setting out the facts on which the application is based (reg 142 (3)).

EVALUATION

[12] The requirements in respect of the appointment of the SEC and the discretion of the Tribunal in this regard are twofold. In the first instance it must be determined if the company is required to appoint a SEC. If this is not the case (eg because of reg 43 (2) (a)), then the Tribunal has no function or discretion.

[13] If a SEC needs to be appointed, the only discretion that the Tribunal has is in terms of section 72 (5), ie

13.1 does another Act require a formal mechanism that substantially performs the function that would otherwise be performed by the SEC, or,

13.2 if is it not reasonably necessary in the public interest to require the company to have a SEC, having regard to the nature and extent of the activities of the company.

[14] It is clear that the circumstances as in para 13.1 do not apply in this instance as the applicant is not subject to such a requirement in terms of another Act.

[15] The Tribunal can, however, give an exemption if it is satisfied that it is not reasonably necessary in the public interest to require the company to have a SEC, having regard to the nature and extent of the activities of the company.

[16] In exercising its discretion in this respect the role and functions of the SEC and the matters that must be monitored as detailed in reg 43 (2) must be taken into account.

[17] The role and functions of the SEC are to:

17.1 monitor the company’s activities with regard to

17.1.1 matters relating to corruption, employment equity and BBBEE

17.1.2 good corporate citizenship, in respect of

18.1.2.1 promotion of equality, prevention of unfair discrimination, and reduction of corruption;

18.1.2.2 contribution to development of the communities and of sponsorship, donations and charitable giving;

17.1.3 the environment, health and public safety;

17.1.4 consumer relationships,

17.1.5 labour and employment, including decent work and working conditions and its employment relationships and its contribution toward the educational development of its employees;

17.2 to draw matters within its mandate to the attention of the Board as occasion requires; and

17.3 to report to the shareholders at the company’s annual general meeting these matters.

[18] The concept “activities of the company” is not defined, and it is suggested that the categories of activities set out in reg 26 (2) to calculate the

PIS determine not only the activities of the company but the nature and the extent of the activities as well.

[19] If the PIS is above 500 the nature and extent of the activities are prima facie significant or material, and the SEC must be appointed.

[20] However, even if the PIS is above 500, the appointment of the SEC may not be necessary if the nature and extent of the activities are such that the appointment of the SEC would not serve the public interest.

[21] Regulation 43 (2) does not prescribe either the nature or the extent of the activities, but reg 43 (5) should be used to determine the public interest, because if the nature and extent of activities are of a certain type and/or magnitude, the matters as in reg 43 (5) would serve the public interest.

[22] In Ex Parte President of the Conference of the Methodist Church of Southern Africa NO: In Re William Marsh Will Trust 1993 (2) SA 697 (C) at 703 “public interest” was defined as: “The phrase 'the public interest' does not permit of a clear and comprehensive definition. As was observed by Herbstein J in Argus Printing and Publishing Co Ltd v Darby's Artware (Pty) Ltd and Others 1952 (2) SA 1 (C) one must adopt, in giving effect to the phrase, a

'broad commonsense view of the position as a whole . . . (and it must be considered whether) . . . the public would be better served if the applicant were to be allowed to proceed with its scheme than by a continuation of the existing state of affairs.'”

[23] The activities that need to be evaluated to decide whether it is in the public interest, given the nature and extent of those activities, to grant an exemption from appointment of a SEC, are obviously only those used in respect of the calculation of the PIS, because the level of those activities determine whether, in the public interest, a SEC must be appointed.

[24] One can be tempted to apply the reg 43 (5) principles to determine whether a SEC must be appointed, and not the activities as in reg 26 (2).

[25] This is, however, fallacious for various reasons, some of these being that in the first instance the functions and principles (“matters” as provided for in reg 43 (5) (a)) as in reg 43 (5) must be “monitored” and reported on by the SEC. To use it to determine whether a SEC must be appointed would be a circuitous argument. Secondly, even if this is not the case, the provisions of reg 43 (5) (b) and (c) can never be a factor to determine the necessity of a SEC as those are functions of a SEC if appointed. Thirdly the function of the SEC is “…to monitor the company’s activities…” with regard to the matters in reg 43 (5) and therefore only if the activities are such that it would be material in respect of the matters in reg 43 (5) is it required to be monitored by the SEC. The matters in reg 43 (5) are therefore not activities.

FINDING

[26] As stated in para 4 above it is accepted that the applicant must appoint the SEC.

[27] The applicant avers that it need not appoint a SEC due to the fact that the fact that it is a dormant, investment holding company that does not trade in shares or conduct trading activity an that does not have any employees.

[28] The company is clearly not “dormant” in the true sense of the word, but this is not significant in the finding in this matter.

[29] Regulation 43 (2) sets out the role and functions of the SEC, and the business operations of the applicant clearly have no or little relevance to these.

[30] To require a SEC under these circumstances would be unnecessary and clearly not in line with the intended functions of the SEC. To nevertheless require such a SEC would lead “…to insensible or unbusinesslike results…”: Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA) para 18.

ORDER

[31] The application for an exemption in respect of the appointment of a SEC is hereby granted for a period of five years from the date of this ruling.

PROF P.A. DELPORT

MEMBER OF THE COMPANIES TRIBUNAL

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